Nashville Bankruptcy Trustee Starts New Program to Help Financially Ailing Homeowners

by Cynthia Yeldell , Nashville Business Journal

Nashville’s Bankruptcy trustee is joining his counterparts in Memphis and Jackson to launch a new tool to prevent foreclosures.

The Tennessee Mortgage Mitigation Project pairs troubled homeowners with community organizations that serve as mediators to help borrowers negotiate new loan terms with mortgage lenders.

Under current law, bankruptcy judges aren’t allowed to alter the terms of mortgage loans.

Middle Tennessee Chapter 13 Bankruptcy Trustee Henry Hildebrand says the program is needed because local foreclosures are growing at an exponential rate. He says bankruptcies with mortgage foreclosures have been increasing the past two years and are up 20 to 30 percent from last year.

Of the 400 bankruptcy cases Hildebrand sees each month, he says about 300 have mortgages tied to them.

“It’s not like Nevada where they have enormous problems, but it’s pretty substantial here,” Hildebrand says.

The Center For Responsible Lending expects 46,218 foreclosures in Tennessee – primarily in 2008 and 2009 – that will decrease home values and the tax base by an estimated $967 million.

The agency says court-supervised modification could reduce the number of foreclosed homes by 11,555 and save $242 million in home values and tax base.

Hildebrand says the program is beneficial to mortgage lenders and borrowers. For instance, it can help buyers keep their homes by arranging for a loan change from an adjustable rate to a more affordable fixed rate.

Lenders save money by preventing foreclosures, estimated to cost an average of $50,000 per home, Hildebrand says.

Each bankruptcy trustee has developed a list of mortgage lenders that are willing to work with borrowers and a list of local community organizations that will serve as mediators.

Teresa Burns is executive director ofGAP Community Development Resources, a nonprofit organization that is on the list of local mediators. Burns says homeowners can receive help preventing foreclosures before or after going into bankruptcy.

Burns’ Williamson County office has been bombarded with requests for foreclosure help in recent months, she says.

In September 2007, 10 clients requested foreclosure help. In March this year, there were 110 new cases.

The increase was gradual at first. Burns saw 16 new cases in November last year, 24 in December and 48 in January.

“I do have some people come in here and just try to leave their keys in my office because they just can’t afford it,” Burns says. “I can foresee the same thing that hit Atlanta and Florida coming here.”

Donna Marie Jendritza, public relations manager for Texas-based Litton Loan Services, one of the mortgage lenders on the list, says her company has been working with borrowers to modify loans since 2006. The company can lower interest rates, change adjustable rate mortgages to fixed rates or waive fees, she says.

“We are working with the courts to come up with a plan,” Jendritza says.

George Stevenson, one of two Chapter 13 bankruptcy Trustees in Memphis, says West Tennessee started its program earlier this year.

He says the program has raised awareness of loss mitigation and more lawyers are starting to enter the process before their clients file bankruptcy.